British defy economic chill and head for the sun

British consumers are continuing to defy fears of a big slowdown in holiday bookings this summer, while north European sales are booming, said Thomas Cook, which has also revealed it was in talks to buy a Russian tour operator.

The second-largest tour operator in Europe said orders for summer holidays were up 12% year-on-year while prices were 8% higher, even though there has been a small increase in capacity for the buoyant north European sector.

In Britain, where capacity has been cut by 10%, there has only been a 3% year-on-year reduction in bookings, allowing the company to increase selling prices by 2% at a time when high-street retail sales have fallen heavily vowing to tighter credit and rising energy bills.

The UK market is of particular concern to Thomas Cook, which took over MyTravel last year, as it accounts for 40% of its overall sales. British holidaymakers are still finding cheap breaks in America, but a holiday on the continent has become much more expensive as the pound has slipped to a record low against the euro.

"Trading for summer 2008 has been strong in our main markets and we are set to enter the season in a very good position," said the company. "We currently have 19% fewer holidays to sell [in Britain] than at this time last year, which should stand us in good stead in the latest market."

Thomas Cook said it was confident of meeting 2008 expectations as strong demand and a cut in the number of holidays on offer has bolstered prices. "We have less to sell right across the group ... demand is still outstripping supply," explained chief executive Manny Fontenla-Novoa.

Despite strong demand, tour firms are struggling against the surging cost of the euro, which has made European breaks more expensie for British holidaymakers but made it cheaper for those in the eurozone to take holidays in other parts of the world.

Soaring oil prices have pushed up the price of flying but Thomas Cook has headed off some of the problems posed by $100-a-barrel oil through hedging.

"We took the decision when the cost of oil was down at $83-$85 two months ago to hedge our remaining position [for 2008] and we are very glad we did," said Fontenla-Novoa. "We are partly hedged for next year - in the region of 25-50%," added finance chief Ludger Heuberg.

Having recently spent €250m (£200m)on a string of acquisitions in India and the Middle East, Fontenla-Novoa said the company was in talks with Russian operators as it tries to get a foothold in that rapidly growing market.

"We are focusing on a tour operator, mainly outbound out of Russia and in mainstream [holidays]. We would like a business that is strong on distribution as well, if possible."

Shares in the firm have risen almost 40% in the last three months. "TCG has released another positive trading statement which continues to point to a supportive booking and pricing environment," said equity analysts at Citigroup.

"Given the rise in fuel and strength of the euro, while trading is positive, we would not expect consensus upgrades at this stage." Thomas Cook is expected to report a pre-tax profit of £346.6m in 2008.